Dogecoin's run up to US$0.40 last Friday, eclipsed awareness of the record prices achieved across the Crypto landscape. For instance, Bitcoin hit ~US$63K while Ethereum hit ~US$2.5K. Unluckily, these two coins did not have the same run-up to their new respective milestones that Dogecoin had.
The price of Dogecoin has held firmly over the weekend and into the new week, not venturing far outside the 30-cent range. Bitcoin and Ethereum, like much of the other top ten crypto projects, started tracking down by Saturday and kept that trend for multiple days.
A reversal of fortune has occurred recently. Most of the projects are now back in the green, for the past 24 hours at least, other than Polkadot and Litecoin.
Today was a legendary milestone for Bitcoin, the most comprehensive used cryptocurrency as it crossed the 50,000 marks as it continues to attract retail and institutional investors worldwide.
Bitcoin's meteoric rise would constitute an understatement. If we consider Tesla for a second, traditionalists would call the stock "overvalued" or "expensive" at just over $780 billion market cap, where Facebook, which is slightly smaller by market cap, is generating a profit multitudes higher than Tesla currently is.
Tesla's value comes from investors believing they will sell more cars in the future. However, with Bitcoin? Its value comes from investors thinking it's going to be worth something more in the future – a self-fulfilling prophecy if you will.
Who knows. Is it expensive? Not quite sure. However, if you invested at the same time last year, you would have been purchasing the cryptocurrency near an all-time high, around $19,500 per coin. If you have the kahunas to hold one single coin till now, you would have returned 390%. Not bad for something that has no intrinsic value.
This rise has been fueled by the recent institutional interest in the coin.
Antoni Trenchev, managing partner and co-founder of Nexo in London, a large crypto lender, stated that "Whether it's Musk, Mastercard or Morgan Stanley, the mood, music and momentum is impossible to ignore."
Antoni may be onto something. The interest in cryptocurrencies is inducing many retail (and possibly institutional) investors to FOMO (Fear Of Missing Out) trade into the cryptocurrency, pushing its price further higher. However, this comes at a warning from the Financial Conduct Authority of the U.K., stating that "if consumers invest in these types of products, they should be prepared to lose all their money."
Earlier this month, we talked about GameStop and its meteoric rise to and downfall. I compared it to the Tulip Mania in Holland back in the 17th Century, and stated that it wasn't quite like the Tulip Mania. With Bitcoin, the comparison is a little bit more appropriate.
With GameStop, even though they were valued at some $25 billion ridiculous valuation, they could hypothetically justify it by selling PS5's at some insane markup and generating billions in sales. However, with Bitcoin? The price derived is from the belief that it will go higher. If enough investors believe it will go to $100,000, investors will buy it at $60,000, $70,000, $80,000, $90,000 and $99,999.
Many chose to state the fundamental justification when trying to justify Bitcoin's price tag is the technology behind blockchain. The speed, anonymity, and self-governing characteristics make it one of the most fascinating technologies of the 21st Century. However, that technology is relatively open-source – one can create a cryptocurrency in hours (See: DogeCoin).
So is Bitcoin all part of a Mania? Have we been brainwashed to think that Bitcoin is worth more than the letters and numbers it's stored in?
Here is a fun exercise. I will take the Tulip Mania explanation I wrote a couple of weeks back when I talked about GameStop, but instead, replace it with Bitcoin.
"In the early 1600s, Bitcoin first arrived on the shores of Holland from Turkey. The flower was exotic, beautiful, and nothing like any other flower that grew in Holland at the time.
Like Turmeric was to the U.K. before exploring India, Bitcoin became an extremely exclusive and highly luxurious status symbol. It was stated that "it was deemed a proof of bad taste in any man of fortune to be without a collection of bitcoins." Bitcoin became a thing to have to "keep up with the Joneses" at the time. Therefore the middle class started to collect Bitcoin to portray this image of wealth.
This demand and love for Bitcoin inflated the cost of Bitcoin, with the rarest Bitcoin in the year 1636 going for $750,000 in today's money. However, many Bitcoin ranged from $50,000 – $100,000. At this point, Mania ensured. Individuals who held extremely rare Bitcoin saw their assets increase in value just by having it. People believe the stock price could never go down and that "the passion for Bitcoin would last forever."
Individuals started buying Bitcoin on leverage and began to use derivatives in hopes that they would profit from borrowed money. However, as confidence started to waver, Bitcoin owners started offloading as fast as possible. This meant people with derivatives were selling at a lower price they bought it at, desperately trying to offload so they could pay their creditors. By 1638, Bitcoin prices returned back to normal."
Obviously, there are fundamental differences between Tulips and Bitcoin. For one, each Bitcoin is the same, and that one could value a specific Tulip at a different price from another person. However, the rarity factor still exists.
There was a recent Bloomberg Opinion article talking about the investors in Bitcoin. To summarise, they stated that given the fluctuations in the price of Bitcoin, Bitcoin investors might be just as or even more impressive than the actual Bitcoin itself – and I would have to agree. Investors who believe Bitcoin will reach $100,000 grasp onto something so non-fundamental it is foreign to many traditional investors, including myself. However, it may just be correct enough to work.
Here's an interesting juxtaposition. There are currently just over 25 Million Currently Infected Patients of Covid-19, with 2.4 million deaths*. However,
The point is, main street continues to grapple with the Coronavirus. However, if you were looking at the financial markets, you would've thought we were in one of the largest economic expansions in history.
So much so, Warren Buffet's favourite indicator is flashing signs of mania. Currently, the U.S equity market cap is more than double the GDP of the United States. The last time this happened was during the bubble of the 2000s.
That is a long, convoluted, and somewhat poor segue to the main point of this article. A lot has happened in the past couple of days, with many asset classes at significant highs during one of the worst pandemics in history – here's an article to summarize them.
As vaccinations pick up in the United Kingdom, alongside lockdown restrictions starting to show results in lower cases and deaths, investors have been flocking the pound as optimism for the United Kingdom's economy. It is important to note that 1.45 was the bid before Brexit was announced in 2015, making it a ripe target for bulls to take.
Vaccines have played a considerable part in the strengthening in confidence in the United Kingdom, helped by the fact that they did not join the European Union's vaccine effort. This enabled them to approve and administer vaccines at a faster rate than their European counterparts.
Nearing the same time last year, we had an unprecedented event occur – traders saw the price of WTI Crude Oil on their terminals go negative. A year of supply cuts, recovering demand, and recently a rise in tensions in the middle east has pushed the black Gold back to pre-pandemic levels.
After an influx of institutional attention dawning upon the digital currency, including the likes from Mastercard, JP Morgan, Morgan Stanley, and of course, Tesla, Bitcoin has reunited with bulls taking the price up to just under $50,000 per Bitcoin. To note, Around the end of November last year, we saw Bitcoin at around $20,000.
The S&P 500 has closed at an all-time high, touching 3,950 in futures trading. The index is up 7% year to date. If we lived in an ordinary world, all-time highs in the equity markets would be the headline of the day.
However, it seems like stocks are too boring nowadays, and everyone wants to know which altcoin is next to return 1000x. However, many companies in the index are producing blowout or at least better than expected earnings. Considering the macro-environment we are currently living in, is quite an achievement.
I had concerns about the notion that investors were considering Gold's valuation – not something you want to be talked about in a safe-haven asset. I believe a safe-haven asset should be there to ballast your portfolio in times of risk-off periods, meaning investors should be able to flock to it / rely on it to hold their portfolio in steady shape.
Gold's steady decline eases my concerns, with Gold trading at around $1,816 an ounce, way off its $2,000 highs. We can see a continuation of the trend should see prices around the $1,700 - $1,750 level.
Markets are frothy – stay safe, and trade safe.
*For you tinfoil hats-wearers out there, I will entertain you by including the fact that there are up to 650,000 deaths due to the flu each year. Take that what you will
The headline says it all – market euphoria has reached an all-time high. However, given the events that have occurred in 2020, it feels like it is just another day at the office. For the most part, it is.
Bitcoin reached an all-time high earlier in the U.S Trading session, touching $43,000. This is primarily due to Tesla CEO, Elon Musk, revealing in an SEC filing that they had purchased over $1.5 Billion in Bitcoin in January.
They stated that they invested “To further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity” - or in other words, a bet on Bitcoin using cash not required to run the business. They also stated that they “expect to begin accepting bitcoin as a form of payment for our products in the near future.”
This interest in cryptocurrencies does not just stick to Bitcoin. The meme currency Dogecoin has returned to all-time high levels at around 8 cents after many celebrities like Snoop Dog and, of course, Elon Musk, continue to talk about the currency.
Like I wrote in my previous article, it was relatively common for people to hold hundreds of thousands, if not millions, of Dogecoins in 2014. Assuming those people held them till now, we would have miners and investors with life-changing wealth – all from a meme currency.
In the commodity markets, Oil has made a legendary comeback. Brent Crude topped $60 as vaccines, and unexpected Saudi cuts have made tailwinds for the Black Gold.
However, some analysts are concerned about the quick rise in price, stating that further tension between Russia and Saudi may ensue due to the higher prices. The last time Russia was not on board with OPEC, prices plummeted below $30 a barrel. Brent currently sits at around $60.60 a barrel.
Equity markets saw a breath of fresh air, with the Dow Jones, S&P 500, and the NASDAQ up over 0.4%. Stimulus positivity, alongside vaccination numbers, boost the possibility of a strong fiscal 2021.
John Stoltzfus, Chief Investment Strategist at Oppenheimer, stated, “as people feel safer, investors can expect the economy to experience a rebound that should contribute to revenue and earnings growth as the economy reflates.”
At such inflated valuations in many asset classes, investors and traders should be ready for a sudden pullback on any negative sentiment.